04/10/2024 | News release | Distributed by Public on 04/10/2024 02:55
Green Lease is not a new topic. Green Leases have been around for quite a while.
It's safe to say, however, that there has been significant movement to implement green lease (ESG) standards into leases in Germany, especially with the new sustainable finance legislation from the EU starting to kick in.
In March 2024, the German Property Foundation Zentraler Immobilienausschuss (ZIA) published Green Lease 2.0. Vom grünen Mietvertrag zum ESG Lease (Green Lease 2.0. From the green lease agreement to the ESG Lease) for commercial leases, possibly giving the implementation of the green (or ESG) lease clauses another push.
There seems to be a common understanding in the Real Estate market that a green lease includes the body of the lease that includes more or less the same provisions as other leases, adding some green or sustainable clauses. A key feature seems to be that the tenant uses and the landlord manages the premises sustainably.
Similarly to other jurisdictions, in Germany statutory law does not cover much of the green lease content. Only a small amount of regulations refer to this area.
For example, rules relevant to green leases can be found in these regulations:
Since there are no rules on how to write green leases, and considering that the interests of landlords and tenants can vary, the parties develop their own standards on a case-by-case basis.
Sample clauses, however, have been developed-in several instances on the basis of multidisciplinary dialogues. For example:
The ZIA Green Lease is popular in Germany among tenants and landlords using green/ESG leases. It was developed as the result of a multidisciplinary dialogue that included real estate companies, advisors and associations that are ZIA members.
ZIA first published the ZIA Green Lease (1.0) in 2018, taking from prior publications in the German market, but also including initiatives introduced in other countries, such as the BBP Green Lease Toolkit. The bundle of sample clauses included in this guide was built on similar modular concepts.
Version 2.0 of the ZIA Green Lease was published in March 2024.
Version 2.0 keeps a very similar structure.
The definition of the green lease also basically stays the same, with one difference:
"A green lease therefore contains at least one provision for
As there is not one definition of sustainability or CSR or ESG, there are multiple definitions. We have to take a conceptual approach. A green lease has to include various goals and interests. The versions of the green lease reflect the development of the concept.
"This defines sustainability as the concept of a sustainable development of the economic, ecological and social dimensions of human existence, which interact with each other and require balanced coordination in the long term, namely
(i) economic sustainability, which is based on the idea that a society should not live beyond its means economically, as this would inevitably lead to losses for future generations;
(ii) ecological sustainability, which is primarily based on the idea of not overexploiting nature and only using natural resources to the extent that they regenerate; and
(iii) social sustainability, according to which a society (in the case of green leases: a contractual relationship) should be organized in such a way that social tensions are kept within limits and conflicts can be resolved peacefully and civilly."
"It is therefore in particular the wish of the Parties to use resources and energy sparingly and economically in the management and use of the lease object, to avoid emissions and to work together constructively in order to also pursue innovative ways to make a [significant] contribution to achieving at least one of the environmental objectives set out in Art. 9 of Regulation EU 2020/852 ("Taxonomy Regulation"), not to significantly impair any of these objectives [within the meaning of Art. 17 Taxonomy Regulation] and at the same time to ensure the minimum protection set out in Art. 18 Taxonomy Regulation. In doing so, economic, ecological and social aspects should be taken into account (summarized as "sustainable use and management")."
In line with the debate in the real estate industry and to reflect the need to reduce consumptions and emissions and be able to report on those savings
Further provisions around sustainable use and management stay as part of the "Basic" green lease toolkit recommendations on requirements (1) for maintenance and construction measures (especially since circular economy principles and captured CO2 in construction have become more prominent); on (2) service charges requirements; (3) recommendations on cleaning and waste and targets for energy, reducing waste and water savings.
The additional green lease clauses 2.0 still include clauses relating to rights and obligations for example relating to:
Same as in other jurisdictions, there is a debate around the measure of commitment that the parties have to make relating to green lease provisions. Version 2.0 puts more weight on the discussion of enforcement of green leases by including this in a separate chapter.
There's been a significant increase in the use of green leases, especially since the EU taxonomy regulation went live. In the real estate market there also seems to be an increase of users accepting (or even demanding) green lease clauses.
ZIA Green Lease 2.0 includes certain rather clever changes and can serve as a basic toolkit. It briefly refers to sustainable finance regulations and other changes in the law, which illustrates the accepted reference to the new regulatory landscape. It makes sense to stress the importance of consumption and emissions data and to add a reference to monitor emissions based on CRREM.
The ZIA Green Lease 2.0 toolkit is intended to serve as a basis for drafting green lease provisions, and in several instances, these provisions should be tweaked to serve the individual interests of the lease parties. For example, some companies might want to spell out clauses regarding mobility, given the significance of carbon emissions and the holistic view, which the regulator seems to lack in several events. Also, the clauses do not spell out the use of space for renewables. However, since we need a lot of movement from the legislators to simplify installation of renewables, in the ZIA Green Lease 2.0 toolkit, it is stated quite rightly that the process of implementing green leases has to be accompanied legally.
We look forward to observing how the market reacts to the framework and to hear about the experience after using the clauses in the course of the next one to two years, for example whether EPC ratings will get the same importance as in other countries due to the requirements for minimum energy performance standards (MEPs) under the recast of the EPBD (for more information on the recast see Dentons - Proposed recast of the Energy Performance on Buildings Directive (EPBD) - what's going on?).
Dentons can assist you on various aspects related to the topics covered, such as: